The three unstoppable cities driving continued property price records
For almost a year and a half Australian property prices have been rising and nothing is suggesting the juggernaut is to be slowed any time soon.
There’s been a general rule in property that when interest rates go up, property prices go down.
Except when they don’t.
As this week’s Australian Bureau of Statistics data revealed, ‘sticky’ inflation that rose this month to 3.6 per cent means interest rate cuts are pretty much off the table for 2024.
But property prices, especially those in the mid-sized capitals, continue to brush off such concerns and register ever-higher record median dwelling values.
The latest CoreLogic Home Value Index released Monday (3 June) rose for the 16th consecutive month, this time by 0.8 per cent.
PropTrack’s monthly data also had national property prices at record levels, with prices in capital cities outpacing regional areas over the past year, a trend that has continued in May.
Eleanor Creagh, PropTrack Senior Economist, said the fading hopes of an interest rate cut would drive further market strength.
“Despite some easing in the rate of population growth and more stock on market, home prices are expected to lift further in the months ahead, although, it is likely the pace of growth will continue slowing through the seasonally quieter winter period, particularly with interest rate cut expectations pushed out to late-2025.”
As has been the case over the past couple of years, it is Perth, Adelaide and Brisbane doing most of the heavy lifting, while Hobart and Darwin continue to slip backwards.
The Sydney market also reached a new milestone in May, posting a nominal recovery, equalling the earlier record high set in January 2022. Sydney dwelling values dropped by 12.4 per cent following the January 2022 peak, finding a floor a year later. The market has since posted a 14.1 per cent rise through the cycle to-date.
Melbourne’s anaemic property market remains essentially flat, with Brisbane’s median house price now overtaking the Victorian capital for the first time since June 2008.
The median house value in Brisbane is currently $937,479, $190 above the Melbourne median. The median unit value in Brisbane, at $615,429, is also now higher than the median unit value in Melbourne, which is $614,299.
Coming into the pandemic Melbourne’s median dwelling value held around a 37 per cent premium over Brisbane’s, and ACT’s median was approximately 24 per cent higher.
Brisbane values have increased at more than five times the pace of Melbourne values since the onset of Covid, with growth of 59.8 per cent and 11.2 per cent respectively. Brisbane has also substantially outpaced growth in the ACT where values are up 31.8 per cent since March 2020.
CoreLogic research director, Tim Lawless, said extremely low levels of available supply across the strongest markets provide the best explanation for the difference in growth rates.
“The number of properties available for sale in Perth and Adelaide remain more than 40 per cent below the five-year average for this time of the year while Brisbane listings are 34 per cent below average,” Mr Lawless said.
“Inventory levels in these markets remain well below average despite vendor activity lifting relative to this time last year.
“Fresh listings are being absorbed rapidly by market demand, keeping stock levels low and upwards pressure on prices.”
Conversely, listings across Hobart are tracking 41 per cent above the five-year average, a consequence of lower demand, with home sales 6.4 per cent below the previous five-year average over the rolling quarter.
PropTrack’s Ms Creagh said the price hikes looked likely to continue.
“Despite a rise in the number of homes for sale this year, strong population growth, tight rental markets, and home equity gains continue to bolster strong demand.
“Meanwhile, building activity remains challenged by capacity constraints and higher costs, with consequent tight housing supply pushing prices and rents higher.”
Home building approvals remain around decade lows, with ABS data released this week showing approvals for new homes fell by 0.3 per cent in April from already-depressed levels.
“This mismatch between supply and demand is continuing to offset the higher interest rate environment,” Ms Creagh said.
“Further, current interest rate stability has sustained buyer and seller confidence, while ongoing home price rises are likely incentivising many to overcome affordability challenges and transact with the expectation of further growth.”
Unit prices have historically lagged the capital growth performance of houses but that gap is now closing.
Higher rental yields – units nationally deliver a 4.5 per cent yield versus 3.5 for houses – and worsening affordability are driving many to the unit market.
Gary Brinkworth, CEO, Herron Todd White, said the surge in apartment price growth, with some jurisdictions even seeing units gain value faster than detached houses, was a reversal of a long-held belief among some commentators that houses will always outperform units for capital gain in each market.
“I suspect that the desire to enjoy more space during lockdowns resulted in the house versus unit differential widening, however, we now see this growth gap narrow as limited unit supply, rising rents, affordability challenges and the return to city living from the regions increase the demand for units.
“I believe we could be in the throes of the apartment rebound with prices recovering back to long term norms rather than being actively driven higher by economic levers and buyer sentiment about the market.”
